The stock market acted pretty much as expected, volatility going both ways but stocks started to make a downward direction with many sectors. The financials still held up fairly well but my suggestion is to consider taking profits on your long positions and stand aside unless you are using intraday trading techniques. If you are not convinced that the stock market will pull back from here, you could reduce your positions where your original position is 20-30% remaining. This isn't the time to get greedy and go for higher profits than what we got in the last 3 days.

Those two sharp up days triggered some indicators that we have a short-term overbought condition and combined with a nervous market already, it makes sense the market will pull back from here.

No trading occurs on Thanksgiving and the stock market closes three hours early at 10am pacific time on Friday. The only other half day of trading of the year is after Christmas and both days tend to be volatile, usually both are bullish type of days.

Repeat from Monday Evening (still relevant): It is going to be an interesting challenge to interpret what the stock market will do this week. The odds favor a real push and pull between the buyers and sellers but next week I think the sellers will win out and the stock market is likely to resume a downward trend next week. But in the meantime, any long positions, especially the financials, will likely move up tomorrow and probably into Wednesday with some signs of selling and volatility showing up as time passes on.

The insurance stocks [PRU, HIG and MET] appear to be anticipating a bailout in that sector as well. PRU, Prudential has moved up the most but that could give us a decent short swing starting tomorrow.

Stocks already dropping: AAPL, RIMM, HPQ, MSFT, PEP, CLR, POT, AMZN, XOM, UNG (natural gas ETF), SNP & PTR (Chinese oil stocks). It is worth noting stocks that are dropping first after this 3 day upward climb we just had. It may indicate that they will correct harder as the market has a pullback that may start tomorrow.

Intermediate Trade Positions: If you have existing positions, be prepared to hold for several months to see substantial gains. Consider reducing some long positions this week on this rebound and assume that we continue a downtrend next week. Tighten your trailing stop losses with about 2% or less. Don't give up much profit or reduce your losses by selling some long positions this week. The market could easily and should get back on a corrective cycle soon, possibly as soon as tomorrow.

Swing Trades: I would not be considering opening any new swing trades long. The financial stocks are a little dangerous to be shorting and if you choose any from this sector, let them correct sharply first and then short after they have bounced from that first big drop. [For example, look at AAPL 3 minute chart today]. JPM, JP Morgan and BAC, Bank of America, and WFC, Wells Fargo could possibly be overnight swings short but this sector is very vulnerable to positive news from further government actions. This sector is for advanced traders only.

Day Traders/Intraday stock ideas: The drop and pop technique worked very well in both directions, as expected and will very likely continue tomorrow. This should be excellent trading both short and long tomorrow on intraday trades. Some sectors will drop tomorrow more than others. Note the stocks above under Stocks already dropping. My best guess is many stocks open slightly down tomorrow and then drop sharply followed by a healthy rebound. The more sharper the drop, the bigger the rebound but take note if some stocks take large drops because that is often the signal of the resumption of the correction that I am looking for. AAPL, was clearly one of those stocks that had a big drop from a high of $95.50 to around $88.40 and then bounced $3 or 3.3%.

Concluding thoughts: Look for a peak in stocks this week, possibly as early as tomorrow with some sectors like large oil stocks [XOM, CVX, COP, BP], correcting sooner than other stocks. I'm looking for a top to start opening short positions that will be very small at first and next week profit from a downtrend that is likely to resume. It is hard to predict whether we see lower lows than the recent lows we say on last Friday morning, November 21, 2008, but that isn't important right now except to know we are in a steep downtrend and this is only a rebound within that downtrend until the stock charts look different.Don't sell short until stocks show they are heading down; the worse thing you could do is sell short for your first time while stocks are still rising. You need to let the stocks break down first and show signs of weakness before opening a short position. It is a good practice for even well-seasoned traders.

Best odds only, be decisive, aggressive, mentally flexible, stay in position size, don't overtrade and wait a little longer to buy and wait a little longer to sell. You will find that will make you more money on your trades.

Don't trade unless the setup is there for you, then use the charts to tell you when the odds are heavily in your favor. I recommend wide stop losses when using this technique otherwise you get stopped out frequently which is expensive, frustrating and distracts you from the bigger picture of making a successful trade. Don't force anything to work for you tomorrow, let the setups develop and then take advantage of that. Be patient the next couple of days. Stay in position sizes without letting any intraday trade be more than 15-20% of your total account value. As you build your account, your position size percentage should get smaller and smaller to lower your risk.

Have a Happy Thanksgiving and I will not be giving a report on Thanksgiving Thursday for the half day on Friday. Have a great weekend and I'll write a report Sunday evening, November 30, 2008.

Mitch King is the founder of TradeStocksAmerica.com. All material presented herein is believed to be reliable but we cannot attest to its accuracy. All material represents the opinions of Mitch King. Investment recommendations may change without notice and readers are urged to check with their investment counselors before making any investment decisions. Opinions expressed in these reports may change without prior notice. Mitch King and/or the staff at TradeStocksAmerica.com may or may not have investments in any stocks cited above before or after this newsletter is prepared. Opinions expressed in these reports may change without prior notice.

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